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Oil refineries to merge
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September 23, 1996: 6:48 p.m. ET
Diamond Shamrock, Ultramar to join forces in $860M stock swap
From Correspondent Allan Dodds Frank
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NEW YORK (CNNfn) - Two independent oil refining and marketing companies announced plans Monday to join forces.
Texas-based Diamond Shamrock said it was merging with Ultramar, a refiner with operations centered in California and Canada, in a stock swap worth about $860 million. When completed, the deal will create a company named Ultramar Diamond Shamrock Corp., with revenues of $8 billion annually.
Market observers were calling the deal a merger of equals. Each company has equipment capable of handling almost 250 million barrels a day, and together they have more than 4,000 gasoline retail outlets, mostly in grocery stores.
William Randol, energy analyst at Lehman Brothers, said the company's functions do not overlap. He also said it is unlikely that there will be any anti-trust concerns.
"It's two well-managed companies that operate in entirely different areas. The hope is that two plus two equals five," he said.
With two refineries in Texas and others in California and Eastern Canada, the merged company will be able to feed products to both coasts, said Jean Gaulin, chairman and chief executive officer of Ultramar.
"We have a refinery in California and they have a refinery in Texas. We can approach the market from both sides and take advantage of higher margins because it's inland. It's the same thing in Quebec. We can now penetrate the Northeast market. There's no refining capacity there," he said.
Over the past month, Diamond Shamrock stock has jumped almost 20 percent. Options activity was up so much last week that the Chicago Board of Trade Monday launched an investigation. Roger Hemminghaus, chairman and CEO of Diamond Shamrock, insists there was no leak. (188K WAV) or (188K AIFF)
With revenues of almost $8 billion, analysts say the combined companies will be able to forge a stronger competitor that will rival independents like Tosco and Sun Oil.
The new company will be based in San Antonio, Texas. Officials said about 200 workers will be laid off, mostly in California.
Wall Street welcomed the news. Shares of Diamond Shamrock closed up 3/8 to 30-5/8, while Ultramar posted a gain of 1-3/8 Monday to close at 29-7/8.
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